THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, January 5, 1997 TAG: 9701040486
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY AKWELI PARKER, STAFF WRITER
LENGTH: 172 lines
Death keeps office hours 24 hours a day, every day. For the typical mortician, that means being on call all the time.
But the growing trend of corporate consolidation in the ``death care'' industry, which includes funeral homes, crematories and cemeteries, is making life easier for some funeral home directors while changing the industry's landscape.
Through aggressive acquisition and mergers, mega-corporations like Houston-based Service Corp. International and Burnaby, British Columbia-based Loewen Group Inc. are grabbing an increasing share of what has almost always been a owner-operated industry.
But don't close the casket on mom-and-pop mortuaries just yet.
Unlike buying groceries, choosing a funeral home remains a highly personal, emotional experience for consumers - an experience inconsistent with the McDonald's-style, cookie cutter model that proved so successful in retail.
Realizing this, big corporations are reaping hefty profits by duplicating the style of mom-and-pops with local, personalized service.
``It's nothing from the aspect of trying to put anyone out of business,'' says Dennis W. Byers, general manager for Loewen-owned Lindsey Funeral Homes and Crematory in Harrisonburg. He is also vice president of the Virginia Funeral Directors Association.
Byers says it's unlikely that big chains will ever render family-owned mortuaries obsolete.
Service Corp., the industry leader with 3,200 funeral homes and cemeteries worldwide, has been around since 1962. But the current industrywide trend of aggressive acquisition is only a five to 10-year-old phenomenon, say industry watchers.
In 1994, 87 percent of all funeral homes were independently owned, according to the National Funeral Directors Association. In 1995, that slipped to 85 percent.
Judging by the aggressive acquisition binge of Service Corp. and others, even fewer family-owned funeral homes will be around by the end of this year, predicts Merrill Lynch.
Service Corp. already owns two properties in Hampton Roads; the company would not name them. It is also wooing Smith & Williams, which has local funeral homes in Norfolk and Kempsville. Neither company would comment, but a Smith & Williams manager said ``we are in the process of being acquired.''
In most states, the market is glutted with funeral homes. Virginia, for instance, has more than twice the funeral homes needed to keep pace with the death rate, according to the Funeral and Memorial Societies of America, a non-profit consumer education group.
Hampton Roads alone has at least 40 funeral homes.
``In many locations, you could shake out a market and I don't think it would hurt the consumer one bit,'' says Eugene Ogrodnik, president of the Pittsburgh Institute of Mortuary Science.
So why are funeral home consolidators so anxious to expand? Bodies. The U.S. Census Bureau projects a 61 percent increase in the annual number of deaths by the year 2030. Death care corporations say they offer independent owners several advantages over going it alone. For one, their deep pockets and personnel pool make it possible for morticians to take time off. At one establishment, ``the owner had not had more than a three-day vacation in 14 years,'' says Terry Davis, general manager for the Loewen-owned Williamsburg Funeral Home.
Consolidators also help their local operators cut costs by organizing their local properties geographically and having them share resources like hearses, embalming facilities and workers.
Another advantage: corporations can afford benefits such as medical insurance, pension plans and the ability for former owners to move on without worrying about what will happen to the business.
In many cases, a consolidator will take over when a mortician wants to retire, but has no one to whom he can hand over the business.
Thus, funeral homes that have become community fixtures can remain open.
Not everyone is cheering, though. In an industry already scrutinized for high prices, critics complain that corporate-owned establishments bloat prices even further.
``Chain ownership is basically bad news for the consumer,'' says Lisa Carlson, executive director of the Funeral and Memorial Societies of America.
``Their pricing is extremely abusive,'' she says of the corporate chains, adding that they charge 50 to 90 percent above average for some equipment and services.
The average cost of a funeral nationwide is $4,600. At a corporate-owned funeral home, it's $6,000, according to the group.
``Part of it is that we've been very gullible,'' Carlson says. ``Some people think how much they spend on a funeral proves how much they loved Mom.''
Cliff Edwards, manager for the Cremation Society of Virginia, left Williamsburg Funeral Home after helping to found it in 1990 and working there five years. He spent the last year working for Loewen, which bought the company out from under him - he only owned 40 percent of it.
``I couldn't stand it,'' Edwards says of working with Loewen. The company offered a lot, but not enough, Edwards says.
``Benefits. Retirement. Salary. But they can't offer you self respect.''
He says he grew weary of overcharging for services and being pressured from above to push more costly caskets onto bereaved customers.
``As far as setting your prices, they can be as high as you want them,'' Edwards says.
As for the money saved by the parent company's bulk-buying power, he says the money was passed on to stockholders, not consumers.
``Why pass it on (to customers),'' he asks. ``Nobody's looking, nobody cares.''
Davis, of Williamsburg Funeral Home, counters that the company sets its prices based on how much customers are able to pay. In cases of firefighters or police officers killed in action, or with destitute families, the funeral home often gives the funeral at a reduced rate or gratis, according to Davis.
Other independents worry they would lose control of the business's operation if they consented to corporate ownership.
``For everything you wanted to do, you'd have to go to the board,'' says Vivian Thomasson, who runs Thomasson Funeral Services in Virginia Beach with her husband Perry.
Thomasson departs from the standard funeral parlor fare of dark, somber rooms and gloomy organ music in favor of bright rooms and light jazz. She concedes that having a corporation's deep coffers to fall back on would be nice, but says she wouldn't want to give up running the business her way - which corporate bosses might find too risky and unorthodox.
``I would say `thank you, but no thank you.'''
But supporters of the chain concept say it isn't the Faustian arrangement that some independent operators believe.
Davis insists there is no one-size-fits-all strategy handed down from corporate.
``A funeral is a celebration of life and no two lives are exactly the same,'' Davis says. ``No two funerals should be the same.''
Byers, of Lindsey Funeral Homes and Crematory in Harrisonburg, agrees.
Although Loewen's marketing gurus ``have their ideas of what will work best for us,'' says Byers, ``they don't come in and say `you must do this and you must do that.' What we do is done locally.''
Davis doesn't deny that chain-owned prices might be higher, but says ultimately it's local managers, not Loewen bean counters in British Columbia, who decide how much to charge.
``Any time you go in and acquire a business, there are processes that cause price to go up - you've gotta pay the mortgage.
One of those processes is overhead - employee salaries, administration and equipment costs.
Another, and a biggie, is compliance. The industry is regulated by the Federal Trade Commission, the Occupational Safety and Health Administration and the local health board, among other agencies.
In the preparation room, where an embalmer has to deal with biohazards ranging from human waste to contagious disease, messing up could mean a $10,000 to $15,000 fine from OSHA, says Byers.
On the consumer end, watchdog groups like the AARP and memorial societies keep an eye on fraudulent practices and overpricing.
Nonetheless, consolidators have found buried treasure in burying people, thanks to a limitless customer base and relatively high price mark-ups.
Due in part to aggressive acquisition, Service Corp. recorded revenues of $1.6 billion for the first nine months of 1996, a one-third increase over the previous year.
Loewen estimated its 1996 year-end revenue would exceed $900 million, also a third higher than the year before.
Late last year Service Corp. launched a hostile takeover bid of $4.3 billion for Loewen, its closest competitor. But the specter of antitrust violation has hovered over the proposal.
The Securities and Exchange Commission must weigh in before Loewen's shareholders can vote on it. If Service Corp.'s bid succeeds, the transaction would qualify as the third-largest international merger of 1996, according to Bloomberg Business News.
Service Corp., meanwhile, announced the sale of its 40 percent stake in Equity Corp. International, another death care conglomerate. Industry watchers say the move constitutes a sacrificial offering to regulators, who are wary of Service Corp. forming a monopoly.
There are dozens of smaller consolidators, whom Merrill Lynch predicts will fall prey to their bigger, acquisitive brethren at an even faster rate this year.
Ogrodnik, president of the Pittsburgh Institute of Mortuary Science, cautions about making any sweeping conclusions about the trend: ``There are pros and cons as to what consolidation is about and it depends on individual markets whether it is good or bad.'' ILLUSTRATION: Color photos
TAMARA VONINSKI/The Virginian-Pilot
Below, Vivian and Perry Thomasson of Thomasson Funeral Services in
Virginia Beach say they don't want to give up the freedom they now
have to do unorthodox, upbeat funerals for folks.
KEYWORDS: FUNERAL BUSINESS